! Required information [The following information applies to the questions displayed below.] Satellite Systems modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures: Basic research to develop the technology Engineering design work Development of a prototype device Testing and modification of the prototype Legal fees for patent application Legal fees for successful defense of the new patent Total $3,700,000 1,140,000 570,000 370,000 77,000 37,000 $5,894,000 During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all the above as costs of the patent. Management contends that the device represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized. 2. Determine the amount Satellite Systems should report as research and development expense in the income statement. Research and development expense